- Harvey is the worst storm to hit the U.S. coastline in over a decade, causing insurance stocks to sell off and creating better buying opportunities.
- Damage will be extensive due to wind and even more so due to flooding, with over 50 inches of rain expected in some locations.
- Oil facilities are clearly vulnerable and other commercial and personal property will be destroyed, hitting insurers with significant losses.
- Insurance carriers in Texas include major players such as Chubb (NYSE:CB), American Int’l Group (NYSE: AIG), and Travelers (NYSE: TRV) on the commercial side, and Allstate (NYSE: ALL), Berkshire Hathaway (NYSE: BRK-A), and Progressive Corp. (NYSE: PGR) on the personal lines side.
- Not clear at this time if Harvey will trigger any catastrophe bonds, but it is unlikely to firm industry pricing.
A Category 4 Event
Insurance stocks have sold off on the Harvey news, creating better buying opportunities, as typically the stocks sell off on the news of a storm and then rally when insured losses are assessed at less than feared. Economic losses from Harvey are likely to exceed insured losses, as flood insurance is more a federal government than a private sector covered risk.
Hurricane Harvey made landfall on Friday night August 25, 2017, in the coastal town of Rockport, Texas, about 30 miles outside of Corpus Christi, Texas. Upgraded to a category 4 hurricane, it hit land with 130 mph winds.  While the strong winds from the hurricane and several related tornadoes surely created wind losses, the biggest problem with Harvey concerns subsequent flooding. The storm was downgraded quickly to a tropical depression once it hit land, but it has stalled over the region rather than moving out as a typical storm would.Â
Harvey comes almost exactly 25 years to the day that Hurricane Andrew devastated the state of Florida and forever changed the insurance industry by establishing Bermuda as a major insurance center. Late August is also the anniversary of Hurricane Katrina (2005), to date the most costly U.S. hurricane at about $50 billion in 2016 dollars. Two of the costliest hurricanes to hit the U.S. in recent years have landed in Texas – Hurricane Ike in 2008, and Hurricane Rita in 2005. Hurricane Alicia was another major hurricane that hit Galveston, TX in 1983.
